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Muni Fiber in Rural Massachusetts - Community Broadband Bits Podcast 113

Though much of western Massachusetts has poor access to the Internet, the town of Leverett is in the midst of fiber build that will offer a gigabit to anyone who wants it. Peter d'Errico, on the town Select Board, has been part of the project from the start and Chairs the Broadband Committee. He joins us for Episode 113 of the Community Broadband Bits podcast.

He and I discuss the great need for the project and inaccurate broadband maps that overstate availablility in the region. We discuss the role of the "municipal light plant" law that gave them the necessary authority to invest in the fiber.

But more interestingly, we talk about how they have structured the financing and prices for subscribers. The network will be repaid both with the revenues from subscribers and a modest bump in the property tax. The kicker is that many households will see their taxes increase a little but the amount they spend on telecom will decrease substantially, resulting in more money in their pockets each month.

We have written about Leverett often over the years, the archive is here. Read the Leverett FAQ here.

You can read a transcript of this discussion here, courtesy of Jeff Hoel.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 18 minutes long and can be played below on this page or via iTunes or via the tool of your choice using this feed.

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Waylon Thornton for the music, licensed using Creative Commons. The song is "Bronco Romp."

Rural Indiana Looks to Tax Increment Financing to Build Fiber Networks

Wabash County, Indiana wants to expand its access to high speed internet through a fiber optic network build out, and is planning to use a distinctive financial tool to do so. The Wabash County Redevelopment Commission has begun the process of assigning a special Economic Development Area designation for the purpose of helping to finance new fiber deployment through parts of the mostly rural county of 33,000 people.

Tax Increment Financing (TIF) is method of public financing that uses future gains in property or sales taxes within a defined area to subsidize a redevelopment or infrastructure project. A local jurisdiction can borrow money up front, build the project, and then use the increased tax receipts it generates to pay off the debt over a period of years. The concept is actually pretty simple: capture the value that something will have in the future to build it now.

TIF  has been a popular approach among local politicians around the country for decades as a way to work around tight budgets and finance improvements in blighted areas, often in the form of public infrastructure. It has sometimes drawn criticism, especially in cities like Chicago where it is very heavily used. One downside is that it effectively takes properties off the general tax rolls. 

More important for our purposes, however, is that the use of TIF for next generation fiber optic networks is a fairly new phenomenon. While municipal networks around the country have used a wide range of financing approaches to cover upfront costs, most have revolved in some way around bonds that are repaid from network revenue. Using TIF to capture the increased property value that a fiber optic network would create is an interesting approach.

In the case of Wabash County, it’s not yet clear exactly how the funds would be used. There is a local private incumbent provider, Metronet, which received $100,000 last year to match its own $1 million investment to bring fiber to a town on the north edge of the county. The county also has a cooperative utility (Wabash County REMC) that provides power and telephone services in rural areas and has expressed interest in using TIF to build out a fiber network. Whichever entity ultimately receives TIF money, it does not appear that the county is interested in owning the network itself. 

Wabash County is not alone it its pursuit of TIF-backed fiber networks. Other counties and municipalities in rural Indiana have been moving along the same lines, from Chesterton in the north to Dubois County in the south. The Indiana  Association of Cities and Towns, meanwhile, recently helped defeat an attempt by telecom industry lobbyists (ahem, AT&T) in Indianapolis to pass legislation eliminating the authority of local governments to use TIF - but only for fiber optics and other telecommunications equipment.  

Whether or not TIF eventually proves to be a good tool for building high speed fiber optic networks in rural areas and small towns remains to be seen. Taking a broader view of the value of a the public and private value a municipal network creates, beyond a simple glance at network revenues, is a step in the right direction. In any case, the right of local communities to make their own choices about how best to finance, plan for, and pursue their shared needs is paramount.

Utopia at a Crossroads: Part 3

This is the final installment of a three part series, in which we examine the current state of the UTOPIA network, how it got there, and the choices it faces going forward. Part I can be read here and Part II here

In Part I of this story, we laid out the difficult situation the open access UTOPIA network finds itself in and how it got there. Part II gave the broad outlines of Macquarie’s preliminary proposal for a public-private partnership to complete and operate the network. The numbers we deal with here are mostly from the Milestone One report, and assumed the participation of all 11 cities. It should be noted that since five of eleven UTOPIA cities opted out of proceeding to Milestone Two negotiations, the scope and scale of the project is subject to change. The basic structure of the potential deal is mostly set, however, allowing us to draw some reasonable conclusions about whether or not this deal is good for the citizens of the UTOPIA cities.

Let’s first turn to why Macquarie wants to make this investment.  This would be the firm’s first large scale broadband network investment in the U.S., allowing it to get a foothold in a massive market that has a relatively underdeveloped fiber infrastructure. To offset network build and operation costs, it will also be guaranteed the revenue from the monthly utility fee, which my very rough calculations put between $18 and $20 million for the six cities opting in to Milestone Two (or between $30 and $33 million per year for all 11 cities) depending on whether the final fee ends up closer to $18 or $20 per month.

Jesse Harris of FreeUTOPIA puts Macquarie’s base rate of return between 3.7% and 4.7%, which is slim enough that they should have the incentive to make the network successful and truly universal, boosting their share of the revenue from transport fees in the process.

The monthly utility fee is a difficult pill for UTOPIA cities to swallow politically, and has allowed opponents to paint it as a massive new tax.  But this claim ignores the costs of the existing $500 million debt (including interest), which will have to be paid regardless of whether the network is ever completed or any more revenue is generated.

The existing debt adds up to about $8.50 per month per address over 30 years, without accounting for ongoing operating losses (or bond prepayment penalties if the network goes dark) or necessary network maintenance and upgrades. Without completing the network, there is no hope that it could return to self-sufficiency, meaning it would likely require operating subsidies in perpetuity.

Again, Jesse Harris has paved the way by doing an analysis of what is in the best interest of taxpayers from a purely self-interested perspective (ignoring indirect benefits of the network) here and here. As he sees it, it all depends on the take rate: if Macquarie can reach a 38% take rate in the newly expanded network coverage area, the entire deal will cost the same for taxpayers as simply selling off the network. A higher take rate would mean the cities actually spend less to get a completed network than they would to sell it off. But that’s only a narrow look at the balance sheet.

Even at the point where the deal is a wash financially, cities still get a completed network with an included basic level of service for every resident. Comcast and CenturyLink will slash their prices substantially in response to the competition (at least 50% in Provo) so that every citizen benefits regardless of if they use the network. Even for someone with a very basic Internet connection that wouldn’t use the network, they would be paying no more than $11.48 to potentially save at least $15, a net gain. The cities also get a $100M annual revenue stream at the end of the 30-year contract, effectively making the worst case scenario break even after less than seven years of ownership.

Opponents, especially those from the CenturyLink-funded Utah Taxpayer Association (UTA), have focused on the extra cost from the new utility fee to the small segment of the population that neither has nor wants a telecommunications connection. However, some studies have also shown that a fiber connection increases the value of a property, so there really may be some gain for everyone under this deal.

As it stands today, 2,100 miles of fiber have already been built, 70% of it underground. 40% of UTOPIA addresses are passed by the network (meaning they are able to purchase a connection upfront or on a payment plan), but only 10% are actually connected. Some cities are almost completely covered, others less than 20%. Some neighborhoods have one side of a street where connections are offered and the other where services are unavailable. The result of constant funding constraints, frivolous incumbent lawsuits, and poor planning, these pieces of stranded infrastructure can still be reclaimed and capitalized on with additional investment. 

Essentially, UTOPIA city taxpayers are on the hook either way. They can either get something for their troubles with the Macquarie deal (and maybe even end up paying less), or they can call it quits and pay to shut it down. They‘ve taken out a mortgage and built most of the house, but run out of money before they put a roof on. They can either restructure the debt and get on a payment plan to finish the roof, or they can watch the house rot and pay the mortgage for 30 years anyway. 

It is important to note that UTOPIA has a unique dynamic because the network has struggled financially (unlike the vast majority of community networks, most of which use a different business model and learned from the early mistakes of UTOPIA). We have not yet seen any communities proposing to establish a utility fee from the start, but it is an interesting proposition and we will explore it at length in a paper later this summer.

Utopia at a Crossroads: Part 2

This is the second of a three part series, in which we examine the current state of the UTOPIA network, how it got there, and the choices it faces going forward. Part I can be read here and Part III here.

With the status quo untenable, no easy exit strategy, and political opposition mounting, UTOPIA appeared besieged in early 2013. Then along came Macquarie, which started studying the network and putting together a proposal for a partnership. The full Milestone 1 report from Macquarie is here,  but in case you aren’t prepared to read 100 pages the broad outlines are as follows:

  • Macquarie will invest $300 million of its own capital to aggressively finish the network build out in 30 months, finally reaching every address in every participating city without a connection fee (UTOPIA had been charging residents in some areas who wanted service around $3,000 to make the expensive last mile connections to individual addresses).
  • Macquarie would be responsible for network maintenance and periodic upgrades, as well as meeting performance benchmarks. Cost overruns in any of these areas would be paid by Macquarie.
  • Sharing of network revenue (from charging ISPs for transport) between Macquarie and UTOPIA, which could be used to pay down the existing bond debt.
  • At the end of a 30 year period of operations run by the public-private partnership, the network would revert fully to public ownership.
  • All homes would be eligible to receive "free" basic service, with 3 mbps download/upload speeds and a 20GB monthly data cap. For all other services, businesses and homes could choose from any of the 8 ISPs currently operating on UTOPIA, all of which offer affordable gigabit speeds. With a larger, complete network, it is likely that UTOPIA would attract new service providers as well.
  • Imposition of a monthly $18-20 utility fee, assessed to every address in the UTOPIA area over the next 30 years, regardless of whether or not they are network customers. This is why we put the "free" basic service in quotations. The utility fee would be structured with a 50% discount for apartments or other multiple-unit addresses, a 100% premium for businesses, and an option for each city to offer a hardship waiver for the indigent or discount for seniors.

In sum, this is a huge infusion of capital from a private company that could remove the risks associated with running, maintaining, and upgrading the network from the member cities, while potentially offering them a source of revenue to pay down the existing bonds. It also offers universal basic internet access, and the chance for everyone to purchase high speeds and premium services (voice and video) in a truly competitive market running on state-of-the-art infrastructure. The downside, of course, is the monthly utility fee, which is already proving contentious, as well as ceding control of the network to Macquarie for 30 years.
   
In the third and final article on this Macquarie series, we’ll look at the political implications and weigh the costs and benefits of the utility fee compared to what these cities are already paying.

Chanute City Commission Approves FTTH Plan

Chanute City Commission decided on June 9th to take the next step to bring ftth to the community; Commissioners voted unanimously to pursue and finalize funding to deploy a municipal network.

The City's current fiber network provides connectivity to schools, hospitals, electric utility and municipal facilities, the local college, and several businesses. Chanute has worked since 1984 to incrementally grow its network with no borrowing or bonding. Plans to expand the publicly owned infrastructure to every property on the electric grid began to take shape last year.

At a work session in May, Director of Utilities Larry Gates presented several possible scenarios, associated costs, and a variety of payback periods. The favored scenario includes Internet only from the City, with video and voice to be offered by a third party via the network. Residential symmetrical gigabit service will range from $40 - $50 depending on whether or not the subscriber lives in the city limits. Commercial service will be $75 per month. Advanced metering infrastructure will also be an integral part of the network.

The Commission authorized the pursuit of up to $14 million to get the project rolling.

Get a Gig in Oklahoma: Rural Cooperative Deploying FTTH in Northeast Corner of the State

The Northeast Oklahoma Electric Cooperative, serving a five county rural region, plans to begin offering gigabit service in its territory by the end of 2014. The cooperative has formed Bolt Fiber Optic Services to offer connectivity to approximately 32,000 homes and businesses.

According to Light Reading, the infrastructure is funded with a $90 million loan from the Rural Utilities Service. Sheila Allgood, manager of Bolt, notes that the entity is separate, but "profit or loss will go back to the co-op."  Bolt will offer triple-play packages with a third party contracted to offer the VoIP services.

The project also includes a data center, already under construction, that will house network equipment and provide collocation services.

From the cooperative's newsletter announcing the project in December 2013:

The initial phase of the project will deliver fiber in areas of the largest population density (14-20 homes per mile) with subsequent phases eventually working their way into more remote, outlying areas. “We anticipate that the first phase of the project should be available to roughly one-third of Northeast Oklahoma Electric Co- operative’s membership,” explained Due. “A significant number of businesses and community institutions in our area would also be connected during this phase.”

The cooperative lists monthly residential prices as 20 Mbps for $49.99 per month, 50 Mbps for $63.99 per month, 100 Mbps for $83.99 per month, and 1 Gbps for $249.99 per month. All speeds are symmetrical. Bolt is asking interested customers to sign up with a $100 installation fee.

Project completion is scheduled for April 2017.

The Cooperative has produced a short promotional video to get the word out:

 

Video: 
See video

Story Behind Westminster's Pending Open Access Fiber Network - Community Broadband Bits Podcast Episode 100

For our 100th episode, we are excited to share a conversation with Dr. Robert Wack, city council member and driving force behind a planned open access fiber network in Westminster, Maryland. Westminster has just decided that instead of a fiber pilot project, they are going to move ahead with the first phase of a larger deployment.

Dr. Wack and I discuss how that came to be and how the network has already resulted in a committment from an employer to move more jobs into the community. We finish our discussion with a personal anecdote about the benefits of expanding the reach of telehealth applications.

Read more about Westminster and Carroll County.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 20 minutes long and can be played below on this page or via iTunes or via the tool of your choice using this feed.

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Valley Lodge for the music, licensed using Creative Commons. The song is "Sweet Elizabeth."

In Kansas, Chanute Explores FTTH Options

Last December, we reported on Chanute's decision to move forward with plans for a FTTH network. The community has a fiber and wireless network in place that serves utilities, public facilities such as libraries and schools, and several businesses. The network also provides free Wi-Fi across the community. As we discussed in our 2012 case study, Chanute developed its network incrementally over two decades with no borrowing or bonding.

In a City Commission work session on May 5, officials reviewed several options for an FTTH network. In a nutshell, the City is contemplating their involvement in the operation of the future network.

Utilities Director Larry Gates presented several options, reported the Chanute Tribune. Two choices stood out for the working group members:

Scenario C calls for the build out of city provided fiber optic-to-home broadband internet services. Service drops would only be provided to homes that want the internet services.

Under Scenario C, the initial investment would be about $10,926,842 to build the fiber core. The city would need $9,468,033 in funding to complete the project. The project would become cash-flow positive in two years, one month. It would take five years, nine months to pay back financing for the project. The 20-year net present value for the entire system would be an estimated $40,623,151.

Scenario D calls for a build out of the fiber optic-to-the-home system for private communications companies to pay a fee to the city to lease the network and provide services to residential customers. The city would seek private companies for voice, video and internet services.

Under Scenario D, the initial investment would be about $13,906,416 to complete the build out. The city would need $9,468,033 in funding to complete the project. The project would become cash-flow positive in one year, seven months. It would take eight years, 10 months to pay back financing for the project. The -20 year net present value for the entire system would be an estimated $25,667,301.

Under an altered Scenario D, the City would lease out the network for five years to a private company that would offer triple-play services to residents. At the end of the time period, the City would take over.

Several city officials expressed an aversion to city run video services.

“There is not much profit in video,” Gates said. “Provisioners are pretty much naming the price on that.”

“From a business standpoint, providing video is going to cost us more,” [Mayor Greg] Woodyard said. “We’re not going to be able to see a return on that investment.”

An April Tribune article reported on an outreach meeting held by City Commissioners. Brian Inbody, president of local Neosho Community College shared his experience with the network:

“It is as necessary to us as electricity, water and gas,” Inbody said. “We save about $30,000 year over what we were paying through AT&T to provide that service."

Local schools Superintendent James Hardy also spoke to the value of the publicly owned fiber infrastructure:

“If we didn’t have fiber, we couldn’t have school anymore,” Hardy said. “When we’re buying text books and we have text book rotation, half of what we pay for a text book is web-based material. When those teachers turn on their smart boards that are hooked to a computer, everything they are pulling down is off websites, because everything is web-based.”

At the public meeting in April, commissioners addressed concerns about a five percent franchise fee that commenced in December 2013. The network serves public telecommunications and utility operations and now needs relacement equipment. The franchise the fee will cover the costs.

“We were talking about being short money for equipment,” [Senior City Commissioner Tim] Egner said. “We were trying to figure out a way, without raising mill levies, how to come up with this money. With the franchise fee you’re going out over a larger area. You’re going outside the city. With the franchise fee, you can choose how much electricity you use. You can choose how much gas you use.”

The lack of upgrading maintenance has caught up with the city, Egner said.

“When we cut mill levies,” Egner said, “we had to adjust. We had to stop buying things. We stop putting money back for equipment. At some point that catches up with you. So, we had to figure out the best way to do it.”

The working group will meet again later in May to continue the discussion.

Westminster Budgets for Open Access Fiber Network

On Monday, May 12, Westminster moved another step closer to deploying its open access citywide fiber network in Maryland. The Common Council approved a FY15 budget that includes $6.3 million for an FTTH network. The Carroll County Times reported that the $64.8 million budget was adopted 5-1. The opposing Council Member voted no on a different issue.

Last summer, the community launched two pilot projects; they installed fiber in a local retirement community and in the Westminster Technology Park. Community leaders decided to expand the pilots to the Air Business Center. They are already seeing results, with a women's fashion distribution center that decided to move from New York City to Westminster for the network.

We touched base with Dr. Robert Wack, Westminster Common Council President and the person spearheading the project. Dr. Wack told us businesses have been clamoring to get fiber service. Connectivity in the area is so bad, "they are desperate."

Community leaders want to connect 9,000 homes and 500 businesses. Dr. Wack told us the community expects to break even in 3 - 5 years; the build out should be complete in 2 years. Westminster expects to release an RFP for construction within the next week. They will release an RFP for a network operator in June.

Another Carroll County Times article described the basic plan for the project:

Westminster’s fiber network will be a “last mile” project, with the city paying to install “dark fiber” to the door of every home and business in the city and connect to the county’s fiber optic backbone, the “middle mile,” according to Wack.

Dark fiber is fiber optic cables which are connected but not in use, or “lit,” he said.

Wack compared the network to roads, explaining that 10 years ago — though fiber technology existed — if Westminster had laid the cables they would have been useless, similar to constructing roads in the city with no connection to the outside world.

Once the infrastructure is in place, a third-party service provider will install the necessary electronics and run the network, according to Wack.

Westminster's pilot project fiber is located near the Carroll County Public Network, allowing an easy connection to a more extensive infrastructure. From the Times article:

“We see the need and we’re ready to spend the money to get it done,” Westminster Common Council President Robert Wack said.

Open Technology Institute Report Offers Overview of Public Broadband Options

Publication Date: 
May 6, 2014
Author(s): 
Ben Lennett, Open Technology Institute
Author(s): 
Patrick Lucey, Open Technology Institute
Author(s): 
Joanne Hovis, CTC Technology and Energy

The Open Technology Institute at the New America Foundation, along with ctc Technology and Energy, have released an overview of options for local governments that want to improve Internet access. The report is titled, "The Art of the Possible: An Overview of Public Broadband Options."

The paper has been released at an opportune time, more communities are now considering what investments they can make at the local level than ever. The Art of the Possible offers different models, from muni ownership and partnerships to coops. The paper examines different business models and assesses the risk of various approaches.

It also includes a technical section for the non-technical to explain the differences between different types of broadband technology.

From the introduction:

The one thing communities cannot do is sit on the sidelines. Even the process of evaluating whether a public network is appropriate can be beneficial to community leaders as a means to better understand the communications needs of their residents, businesses, and institutions and whether existing services and networks are keeping pace.

The purpose of this report is to enable communities to begin the evaluation of their broadband options. The report begins with an overview of different network ownership and governance models, followed by an overview of broadband technologies to help potential stakeholders understand the advantages and disadvantages of each technology. It then provides a brief summary of several different business models for publicly owned networks. The final two chapters focus on the potential larger local benefits and the risks of a publicly funded broadband project.